Q&A: Small business tax question, are the profits of a small business the same as the pay for the owner?

Question by g: Small business tax question, are the profits of a small business the same as the pay for the owner?
I always thought that the profits for the business were technically separte from the actual income for the owner… and are taxed differently…

but it may depend on what kind of business you have set up?

I’m asking because I’ve often heard people basically use “small business profit” and “owner personal income” in conversations as the same thing, bouncing back and forth between the terms, apparently meaning the same thing?

Best answer:

Answer by Judy
Your question is more complex than you realize.

Profits from a sole proprietorship, and most LLC’s, and s-corps, just flow through to the owner’s tax return so are part of their income for tax purposes, even if they leave the money in the business account.

If the business is a c-corp, then anything paid out to the owner as salary or dividends is taxable to the owner, but money can be left in the business.

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